The burkini bans have exposed historic tensions that are dividing Muslims and threatening French unity

by: Anne-Sylvaine Chassany

In the summer of 1905, the Catholic cassock, and whether to ban wearing it in the streets, sparked a passionate debate in France. For Charles Chabert, a leftwing MP, the black ankle-length soutane was not just an affront to modernity but a reminder of the threat the monarchist Catholic Church posed to the secular republic that he, and his colleagues, sought to consolidate with a bill enforcing a strict separation of state and religion.

Some priests would find it hard to part with the garment, he conceded, but others, “the most clever, the most educated”, would welcome the ban as liberation. Conjuring up an imaginary cleric, shy and buttoned up, Chabert added: “Look at him. The garb makes him a prisoner of his own ignorance … Of this slave, let’s make a man.”

Aristide Briand, author of the separation bill, disagreed. By policing garments, the state would be perceived as “intolerant”, and, even worse, the subject of “ridicule”, he quipped.

Fast forward 111 years, France is again debating religious garb — this time, the burkini. The dispute, which erupted in August when about 30 mayors banned the full-length Islamic swimwear, has laid bare the old fracture between a hardline, uncompromising vision of secularism and a more liberal one, and once again threatens to tear apart a country still reeling from Islamist terror attacks.

Fear and paranoia have galvanised Chabert’s heirs, says Sudhir Hazareesingh, a lecturer in politics at Oxford and a specialist in French intellectual movements. “Their vision of laïcité [secularism] is one that seeks to regulate religions, it’s characterised by anticlericalism,” Mr Hazareesingh says. “They aim to shape a republican identity. They regard religious beliefs as inferior thinking and a form of alienation.”

As in 1905, when they lost the argument on the soutane, those hardline secularists have suffered a setback on the burkini. France’s highest administrative court overturned the ban issued by Villeneuve-Loubet, a small town on the Riviera, setting a precedent for the other mayors who had taken similar action. The obligation of neutrality applies to the state, not to citizens, who can express their religious beliefs, the Conseil d’Etat said.

Yet, with presidential elections next year and polls suggesting a strong showing by the far-right National Front (FN), the debate has hit a nerve in a country grappling with homegrown jihadism and a sense of economic and cultural decline. The burkini dispute has revived the animosity over the wearing of the Islamic headscarf, or hijab, and brought back into focus the deprived, unemployment-stricken suburbs, or banlieues, where many of those involved in recent Islamist attacks were raised.

Islam and France’s estimated 5m Muslims — one of the largest populations in Europe — have become central to the question of French identity. “Centuries of greatness long gone has created a sense of nostalgia,” says Jean Baubérot, a historian specialising in secularism and a supporter of Mr Briand’s liberal legacy. “For some, Islam has become a scapegoat for all our troubles.”

Secularism vs religión

The backlash, however, goes beyond notions of xenophobia. It is rooted in a longstanding suspicion of religions, underpinned by the idea that faith is a private matter restricted to the home and places of worship. This sets French secularism apart from that of the US or the UK, according to Olivier Roy from the European University Institute in Florence who is a specialist on Islam.

“In America, separation was designed to free religion from state interference, whereas in France separation has evolved to exclude religion from public space and to promote the supremacy of the state over religious organisations,” Mr Roy explains.

For the French, integration means shedding one’s religious beliefs, or at least toning them down.

That’s why they have a hard time understanding that some Muslims, including a growing, well-integrated middle class, may want to express their faith for reasons other than social discrimination or religious extremism, Mr Roy adds.

France banned the hijab in state schools in 2004 and six years later prohibited the face-covering niqab in public spaces. The debate is spreading. Germany is looking at whether to issue a similar niqab ban after an influx of refugees from Syria in the past 18 months.

But in France there are calls for more radical action. Nicolas Sarkozy, the former leader vying to win the centre-right presidential nomination in November, wants to ban the veil in universities and the workplace. Islam, he says, “has not done the work to integrate”. He is tacking to a resurgent FN, whose leader Marine Le Pen wants to extend the hijab ban to all public places.

There are similar echoes on the left, rooted in entrenched anticlericalism and a blend of feminism inspired by Simone de Beauvoir’s fight against Catholic tradition. Manuel Valls, the socialist prime minister, said last month that the burkini and the veil are symbols of the “enslavement of women”.

As Briand did in 1905, other politicians disagree. But in a country where atheists are expected to outnumber all other groups by 2050, according to the Pew Research Center, this is a widely shared view. Nearly two-thirds of French adults oppose the wearing of the hijab in the streets or the burkini on beaches, according to an Ifop survey.

Among them, Patrick and Claudine, a couple from Nice who declined to give their surnames, firmly believe that “religion is for the home”. They have no sympathy for the FN, which attracted more than a third of the votes in recent elections in the Nice region, but do support the centre-right mayor’s burkini ban. “Religion is not something one should display,” says Claudine, 59. “Religions have always caused trouble.”

Living a few metres from the Promenade des Anglais, the seafront where in July a Tunisian truck driver killed 86 people celebrating Bastille Day, including many Muslims, they say the massacre — for which Isis claimed responsibility — has left them with questions over the loyalty of the Muslim community.

“We didn’t feel a strong reaction on their part,” Patrick says. In nearby Villeneuve-Loubet, Elisabeth, a 56-year-old topless beachgoer, is more explicit. “They [Muslims] want to impose their way of life. If they want to settle here, then they should do as we do.”

‘The state has let us down’

Muslim groups argue the bans are a visible sign of the mounting Islamophobia in France.

Laïcité, they argue, has become the respectable excuse. More than 429 anti-Muslim acts — everything from insults to physical attacks on people and property — were reported last year, a threefold increase on 2014, according to the government.

Ndella Paye, who describes herself as a Muslim feminist and anti-racist activist, believes the burkini bans are a manifestation of the sexist and colonial attitude of the French establishment.

“We are told that to be free, we need to undress. And by whom? By white mayors and white feminists stuck in the 1970s,” says the 42-year old, who wears a hijab. Muslim women in France are ostracised, she says. “They can’t go to schools, they can’t go to work, they can’t go to the beach or the swimming pool. The French are worse than the Saudis.”

Other female Muslims disagree. Nadia Ould-Kaci and Nadia Benmissi, residents of Aubervilliers, a suburb in northern Paris, say Islamic fundamentalists are trying to impose their rule on the area. It has become difficult to walk, shop or go to restaurants for women who, like them, choose not to wear the hijab, they say.

“It’s not just teenagers or converts who wear the hijab now. There is an increasing number of young girls all covered up,” Ms Benmissi says. The 62-year old was born in Algeria, where she did not wear the hijab. Yet, in Aubervilliers, she gets daily intrusive remarks. “Last time I was shopping, a man looked into my bag and said: ‘This is not halal.’ There is always someone to remind you that you are not a good Muslim here.”

The hijab is not just a piece of cloth, she insists. “We talk a lot about freedom, but what about gender equality? Why is this not as important? The veil symbolises the unequal status of women,” Ms Benmissi says.

In Sevran, north-east of Paris, Nadia Remadna, a French-born social worker, fumes about Muslim feminists like Ms Paye. “These women think that progress is when they can pray behind the men, instead of in the basement,” she says. When she was 15, her father took her back to his home town in Algeria. For 10 years, Ms Remadna stopped going to school and was forced to stay at home — until she fled back to France.

So when she saw her son removing pictures of her from the family album because he found them “immodest”, she started fretting. Later she overheard an older boy rebuking a younger one at her son’s high school, because he “had not seen [him] at the mosque” the night before.

She was shocked to find out the older boy was not a student, but a school supervisor employed by the state.

“You entrust the state with your children, you think they are protected from religion in state schools and this happens,” she says. “Laïcité is not enforced in the banlieues.” Local politicians strike deals with local Salafists [followers of an ultra-conservative movement within Sunni Islam] to get votes and maintain public order in the banlieues, she says. “The state has let us down.”

Rise of conservatism

The emergence over the past three decades of the hijab in the banlieues has coincided with increasing religious conservatism and gender segregation. Research by Gilles Kepel, a professor at Sciences Po, shows that the influence of Salafist movements has grown in these areas in the past 20 years, especially among second-generation immigrants. It has, says Mr Kepel, provided fertile ground for Islamist extremism.

Field work by Jennifer Selby, a Canadian scholar, in Petit Nanterre, a poor district west of Paris, underlines the growing influence of religion on daily life — the women stay at home, the men, many of whom are unemployed, spend their time monitoring the whereabouts of female residents.

Those neighbourhoods are increasingly populated by Muslim families, who grapple with high unemployment, discrimination and oppressive panoptic architecture — towers that allow someone to observe everyone without being seen themselves, says Ms Selby.

The government has poured €40bn into renovation of these districts over four decades, but unemployment is still higher than the 10 per cent national average and the estates are plagued by crime.

Mr Roy says: “Ghettoisation is a huge issue, Salafists are filling a void left by the state. But this problem is not going to be solved by policing the hijab.”

More regulation of religious signs would be counterproductive, says Mr Baubérot. “Should we consider all Muslims as enemies of the republic at the risk of stigmatising them?” he asks.

In 1905, the decision was to try and include the vast majority of Catholics and it worked: with time they embraced the republic and on the eve of the first world war, France was united, he says. “We are wrong to forget the lessons of history,” adds Mr Baubérot.

Building bridges: Secular republic seeks to create an ‘Islam of France’

The 1905 law separating church and state is clear: the French state must not interfere with religious matters. It does not fund and does not meddle with religious groups. However, there is a notable exception. Alsace-Lorraine, annexed by Germany between 1871 and 1918, is still ruled by the Napoleonic Concordat system, whereby priests are paid by the state.Unlike the UK or the US, the secular republic does not collect statistics on religious faiths or ethnic groups. This refusal has long irritated economists and policymakers looking to measure and address discrimination. Supporters, who outnumber those opposing the policy, argue it avoids affirmative action policies and community lobbying, widely seen as a source of division.Over the past decade, the government has sought to give Islam an institutional structure. Nicolas Sarkozy, the former centre-right president, pushed for the creation of the French Council of the Muslim Faith, set up in 2003, to represent the country’s Muslims. Following the burkini row, Socialist president François Hollande set up a state-backed Foundation for French Islam. Jean-Pierre Chevènement, a former Socialist interior minister and staunch secularist, is to preside over the body. It is designed to “build an Islam of France respectful of Republican values”, according to Bernard Cazeneuve, the current interior minister.Officially, the foundation will not deal with religion — it will fund educational research and cultural projects. It will also offer training on the rule of law, France’s secular system and gender equality. A separate, privately funded religious body will be set up to train imams. Critics, however, have already labelled it a patronising attempt to regulate French Muslims.

The Fed has not followed through on their numerous promises of a rate increase that Yellen and other Fed officials have made over the past several years. She spoke about purchasing assets of private companies, and also mentioned that the Fed could modify its inflation target.Investors will most likely purchase shares in companies whose assets have been purchased by the Fed since it is likely that Congress and federal regulators would treat these companies as “too big to fail.” Federal ownership of private companies would also strengthen the movement to force businesses to base their decisions on political rather than economic considerations.Politicians will never restore sound money policies unless forced to do so by either an economic crisis or a shift in public sentiment, not because of a crisis leaving Congress with no other choice!

The failure of the Fed’s eight-year spree of money creation through Quantitative Easing and historically low interest rates have failed to restart the failing economy. They continue to add new tools to artificiality inflate the stock bubble. They will stop at nothing as they discuss implementing NIRP (Negative Interest Rate Policy).The collapse of the fiat system will not only cause a major economic crisis, but also the collapse of capitalism as we know it. Congress has also failed the American people and its economy by refusing to consider meaningful spending cuts. It will not even pass legislation to audit the Red.

The Fed Has Lost Even More Of Its Credibility!Governor Fischer has lost all his credibility. He predicted four rate hikes at the beginning of the year for 2016. His speech on August 21st, 2016 on the slowdown in productivity: “We just don’t know.” Last week, he was down to two rate hikes for the year.The perceived first takeaway on the meeting at Jackson Hole was the one that made all the headlines. Yellen is joining the “chorus” of Fed officials who have been saying it is time for another rate hike: “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” This appears to be the Fed’s new mantra. She added, “And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. When shocks occur and the economic outlook changes, monetary policy needs to adjust. What we do know, however, is that we want a policy toolkit that will allow us to respond to a wide range of possible conditions.” The Fed now calls that “forward guidance.” In other words, they just do not know!

Yellen did mention that QE purchases could be broadened to other assets. The real Fed Fund Rate has been trading deeply “negative” since 2008.

Negative Interest Rate Policy (NIIRP) Is Dangerous!Yellen has now established the fact that it is legal for the Fed to authorize the use of NIRP. She has now put it into her tool box and is developing specific plans for implementing it.The consensus is dangerously wrong by relying on flawed theory and flawed policy assessment. NIRP draws on fallacious, pre-Keynesian economic logic that asserts interest rate adjustments can ensure full employment. The consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. A negative nominal rate on money being held by your bank can be thought of as a form of a tax on deposits that lowers “real wealth” and negative wealth effort on consumer spending and aggregate demand.

Gold In Your PortfolioInvestors should consider doubling their gold allocations amid negative interest rates. The long-term effects of these policies are unknown, but I see discouraging side effects: unstable asset price inflation, swelling balance sheets and currency wars to name a few. Looking forward, government bonds are likely to have limited upside due to their low-to-negative yields.

Amid Higher Market UncertaintyWe have entered a new and unprecedented phase in monetary policy. Central Banks in Europe, Japan, and soon in the United States have implemented Negative Interest Rate Policies (NIRP). Investors, including long-term investors, should assess the implications of holding bonds with negative return expectations on portfolio composition and risk management.My analysis shows that investors will benefit from increasing their gold holdings up to 2.5 times, depending on the asset mix, even under conservative assumptions for gold. In addition, we expect that demand for gold as a portfolio asset may structurally increase due to NIRP.The only “recovery” that we have experienced has been an artificially inflated recovery on Wall Street. For the rest of the country, our long-term economic decline continues.Secular investors should start turning their attention to commodities and precious metals. Gold’s bull market is far from over. The volatility in the gold price in recent days is principally due to sharp fluctuations in the expected path of US rates amid surprises in the macro data and diverge ring comments from Fed officials. The recent consolidations were fueled by profit taking will end shortly. The next Fed meeting will result in more dovish Fed speech, resulting in new and more purchases.When investors realize that they are holding potentially worthless currencies, the big money will rush into the precious metals sector. Consider this, the total world’s investment holdings in silver are a paltry $50.8 billion, compared to $3.04 trillion in gold, as shown in the below.

Did you know that the hedge funds alone manage around $2.7 trillion, according to Barclay Hedge data? Even if a small portion of the trillions sloshing around out there, decides to enter into silver, the white metal’s price will shoot through the roof.The difficulty in identifying asset bubbles is directly related to credit expansion. The problem is not the asset bubbles, whether they be in stocks, housing, or student loans. This is merely a symptom of a deeper condition. The real threat is the underlying credit expansion by easy monetary policies that has created these asset bubble problems in the first place.

DISRUPTION may be the buzzword in boardrooms, but the most striking feature of business today is not the overturning of the established order. It is the entrenchment of a group of superstar companies at the heart of the global economy. Some of these are old firms, like GE, that have reinvented themselves. Some are emerging-market champions, like Samsung, which have seized the opportunities provided by globalisation. The elite of the elite are high-tech wizards—Google, Apple, Facebook and the rest—that have conjured up corporate empires from bits and bytes.As our special report this week makes clear, the superstars are admirable in many ways. They churn out products that improve consumers’ lives, from smarter smartphones to sharper televisions. They provide Americans and Europeans with an estimated $280 billion-worth of “free” services—such as search or directions—a year. But they have two big faults. They are squashing competition, and they are using the darker arts of management to stay ahead. Neither is easy to solve. But failing to do so risks a backlash which will be bad for everyone.

More concentration, less focus

Bulking up is a global trend. The annual number of mergers and acquisitions is more than twice what it was in the 1990s. But concentration is at its most worrying in America. The share of GDP generated by America’s 100 biggest companies rose from about 33% in 1994 to 46% in 2013. The five largest banks account for 45% of banking assets, up from 25% in 2000. In the home of the entrepreneur, the number of startups is lower than it has been at any time since the 1970s. More firms are dying than being born. Founders dream of selling their firms to one of the giants rather than of building their own titans.For many laissez-faire types this is only a temporary problem. Modern technology is lowering barriers to entry; flaccid incumbents will be destroyed by smaller, leaner ones. But the idea that market concentration is self-correcting is more questionable than it once was. Slower growth encourages companies to buy their rivals and squeeze out costs. High-tech companies grow more useful to customers when they attract more users and when they gather ever more data about those users.The heft of the superstars also reflects their excellence at less productive activities. About 30% of global foreign direct investment (FDI) flows through tax havens; big companies routinely use “transfer pricing” to pretend that profits generated in one part of the world are in fact made in another. The giants also deploy huge armies of lobbyists, bringing the same techniques to Brussels, where 30,000 lobbyists now walk the corridors, that they perfected in Washington, DC. Laws such as Sarbanes-Oxley and Dodd-Frank, to say nothing of America’s tax code, penalise small firms more than large ones.None of this helps the image of big business. Paying tax seems to be unavoidable for individuals but optional for firms. Rules are unbending for citizens, and up for negotiation when it comes to companies. Nor do profits translate into jobs as once they did. In 1990 the top three carmakers in Detroit had a market capitalisation of $36 billion and 1.2m employees. In 2014 the top three firms in Silicon Valley, with a market capitalisation of over $1 trillion, had only 137,000 employees.Anger at all this is understandable, but an inchoate desire to bash business leaves everyone worse off. Disenchantment with pro-business policies, particularly liberal immigration rules, helped the “outs” to win the Brexit referendum in Britain and Donald Trump to seize the Republican nomination. Protectionism and nativism will only lower living standards. Reining in the giants requires the scalpel, not the soapbox.That means a tough-but-considered approach to issues such as tax avoidance. The OECD countries have already made progress in drawing up common rules to prevent companies from parking money in tax havens, for example. They have more to do, not least to address the convenient fiction that different units of multinationals are really separate companies. But better the grind of multilateral negotiation than moves such as the European Commission’s recent attempt to impose retrospective taxes on Apple in Ireland.Concentration is an even harder problem. America in particular has got into the habit of giving the benefit of the doubt to big business. This made some sense in the 1980s and 1990s when giant companies such as General Motors and IBM were being threatened by foreign rivals or domestic upstarts. It is less defensible now that superstar firms are gaining control of entire markets and finding new ways to entrench themselves.Prudent policymakers must reinvent antitrust for the digital age. That means being more alert to the long-term consequences of large firms acquiring promising startups. It means making it easier for consumers to move their data from one company to another, and preventing tech firms from unfairly privileging their own services on platforms they control (an area where the commission, in its pursuit of Google, deserves credit). And it means making sure that people have a choice of ways of authenticating their identity online.

1917 and all that

The rise of the giants is a reversal of recent history. In the 1980s big companies were on the retreat, as Margaret Thatcher and Ronald Reagan took a wrecking ball to state-protected behemoths such as AT&T and British Leyland. But there are some worrying similarities to a much earlier era. In 1860-1917 the global economy was reshaped by the rise of giant new industries (steel and oil) and revolutionary new technologies (electricity and the combustion engine). These disruptions led to brief bursts of competition followed by prolonged periods of oligopoly. The business titans of that age reinforced their positions by driving their competitors out of business and cultivating close relations with politicians. The backlash that followed helped to destroy the liberal order in much of Europe.So, by all means celebrate the astonishing achievements of today’s superstar companies. But also watch them. The world needs a healthy dose of competition to keep today’s giants on their toes and to give those in their shadow a chance to grow.

A quarter million young Europeans spent this summer rolling through the Continent on an Interrail ticket. Conversations with the travelers reveal a younger generation that understands the EU better than their elders might think.

By Juan Moreno.

Matteo Leone and Simone Bruno may not know it yet, but they are having the best summer of their lives. They've completed their exams and now they're on vacation -- and "you can't spend it better than we are," says Matteo. In the last couple of weeks, they've visited Barcelona, Madrid, Seville, Paris, Amsterdam and Berlin. Last night, they slept in Prague and the train that is just now rolling into Prague Central Station will whisk them off toward Munich. From there, they are planning to head down to Split on Croatia's glittering Adriatic coast. Matteo and Simone are both 20-year-old architecture students from Florence, and they are both a lot of fun. For the last three weeks, they have been traveling through Europe on an Interrail pass, the European equivalent of the Eurail ticket. Matteo tosses his backpack onto the ground, pleased with himself and his vacation. He has a couple of Internet photos from Croatian inlets he wants to visit on his mobile phone. "Just look at that blue!" he gushes. He's extremely excited to get to the seaside -- and it really is a beautiful shade of blue.For the duration of their four-week trip, Europe is a giant playground for these two Italians, a place of adventure that stands open to them, equal parts foreign and familiar. There are no impediments, just opportunities. They can sit in the train as it zips across the Continent and wonder if they perhaps want to live here, or maybe there. And the dream isn't even as absurd as it would have been for their grandparents. It's possible.It is said that Interrail is not an educational trip because travelers spend most of their time in trains, stations and hostels. Because they just want to party. So I ask Simone and Matteo of Florence: How many Europeans have they met on their journey?

'What a Stupid Question!'

"A lot, a hell of a lot. At least five a day, I'd say, so around 100. But that can't be right -- that's not enough. More, more than 100," says Matteo.And which nationalities can you simply not stand? Which country shouldn't belong to the EU?Matteo looks surprised. "None, of course. What a stupid question!"The Interrail pass has been around for 44 years. The offer -- an idea created by the Austrians, Swiss, Belgians and Dutch -- was presented in 1972 for the 50th anniversary of the International Union of Railways (UIC). The term "flat rate" didn't yet exist, but the offer marked the introduction of what is essentially a flat rate for Europe's train system: a month of freedom in 21 European countries available to everyone aged 21 and under. Almost all connections were included and it could be had for a single price -- or, rather, several different prices at the time: 1,700 shillings, 27.50 pounds or 235 deutsche marks, for example.

The German chancellor at the time was Willy Brandt and, long before Interrail's introduction, he had given voice to a dream: "The day will come when the hate that appears so inevitable in times of war will be overcome. A Europe in which Europeans can live must become a reality." The train to Munich isn't very full. Matteo and Simone each get a seat along with an extra one for their backpacks so they can lean against them for a bit of sleep. They have been surprised at how little time they are actually spending in trains. European trains no longer bump along like they used to -- instead racing from place to place in the era of high-speed rail. It takes only 2.5 hours to get from Paris to London and the trip from Madrid to Barcelona, fully 600 kilometers, can be covered in just a little over three hours. From Paris to Marseille, it's just three hours and four from Munich to Vienna.The two nod off, although they should actually be well-rested. One big problem facing Interrailers is that almost all hostels require that guests leave their rooms by 10 a.m. Even in your early 20s, it's not possible to party through the night and get up early for four straight weeks. For Matteo and Simone, being forced to get out by 10 is the height of incivility.

The Morning Routine

So they've come up with a trick: They wake up way too late, well after 10, calmly pack their things and slouch to the reception. That's where they start their show, speaking loudly and passionately, usually both at the same time. There are, after all, clichés about the Italians, and one must do what one can to live up to them. They claim the outlet at their bedside was broken, which is why their phones didn't recharge, which is why their alarm didn't go off, which is why they didn't leave their room until after 10, which is why they aren't to be blamed -- which is why "è assolutamente not okay" to be forced to pay the late-checkout fee.
No hostel employee has either the time or the inclination to check the outlet. And their ruse works nine times out of 10.
Their morning routine continues once they leave the hostel, as they look for a fast-food restaurant, usually a McDonald's or Burger King, for breakfast. "My mother would strangle me if she knew that I was having a hamburger for breakfast every day for a month," says Matteo. But they've each only budgeted 10 euros per day for food. "If you do Interrail, you should like döner and panini. And you shouldn't be afraid of diabetes."
Nobody knew in 1972 that one of Willy Brandt's greatest legacies would turn out to be a train ticket. Since then, more than 8 million Interrail passes have been sold, around 1.5 million of them in Germany alone, more than any other country except Britain. Last year, 250,000 tickets were sold across Europe, the highest number in years.
Interrail quickly turned into a kind of peace movement, an antidote against prejudice and a way to clear away the mental rubble left over from the war. Whereas grandpa may associate France with Verdun, England with nighttime bombing raids and Spain with Franco, granddaughter doesn't care. She rattles unshowered in second class through this beautiful Continent, seducing the boys on the beach at Rimini.
The first years after the introduction of Interrail were a period of consolidation, with the train of progress leading to economic growth and prosperity across Europe. Country after country got on board for the journey. But then, when the train began to slow -- at a time when peace was no longer a goal but reality -- many began yearning for times past, for the era of postwar rubble. Some say we are already there.Worried about a Crumbling Europe?
Britain doesn't know what it wants, just that it shouldn't be European, and voted in favor of Brexit. Catholic Poland has interpreted solidarity and mercy to mean receiving net payments from Brussels worth around 10 billion euros a year and in return, offering protection to around 400 refugees. Hungary doesn't want to help anyone at all, and to prevent that fact from getting out, it has adopted media laws that would make African despots proud. Finland is considering getting rid of the euro. And France, the Netherlands, Austria, Denmark and Germany all have growing legions of bellyachers who would rather go it alone than continue as a group.
Willy Brandt was wrong. A war isn't necessary to hate Europe.
Are Matteo and Simone, the two Italians lounging in the train to Munich, worried about their futures, about the banking crisis in Italy and about a crumbling Europe? "Yes, of course," Matteo says. "But only in the fall."
Seriously?
"We're optimists," Matteo says, a claim supported by the subject they have chosen to study. They are both students of architecture in Florence, a city where nothing has been built for the last 400 years.
Interrail is the extended break between fun and real life, between school and office. It is a different state of being, and the rules are simple.
Upon arrival, you leave the train station and begin the search for a youth hostel. Once there, you get to know other Interrailers who have just arrived before googling a couple of local sights. Sometimes, you head out for a look and take pictures to send back to your parents, to whom you insisted that such a trip would be educational. Sometimes, though, you just send photos that you found on the Internet, especially when the city has a beach, which are perfect places for a nap. At night, you head out on the town, every evening for four long weeks. A bar, a club, a square where young people gather, a street festival. It really makes no difference, there is always something going on.
"We stay one, two or three days and then catch up on our sleep on the train," says Simone.
"I'll sleep when I get back to Italy," says Matteo. "There is no cheaper vacation available."
The so-called Global Pass costs 479 euros for a month of unlimited travel in 30 countries. Matteo and Simone bought the pass allowing them 15 days of travel in a month for 361 euros, or 24 euros per travel day. It's their summer, their youth, their Continent.
Your worries.On the RoadMunich Central Station to Verona Porta Nuova
Departure: 7:38 a.m.
Arrival 1:13 p.m.

The Eurocity creaks and groans as it slowly begins moving, embarking on the five hour and 35 minute trip to Verona. When you do an Interrail month, you quickly realize just how small Europe actually is. Jamie Anderson and Jenny Aczel, both 18-year-olds from Exeter in southwestern England, have been on the road for three weeks and have left Italy for the very end of their trip. Venice is to be the end of the road. Of course Venice. One is tempted to tell them that Venice is an awful, degenerated Italian romantic theme park overrun with tourists. But it is also true that only those who have forgotten what it was like to stand in love on Piazza San Marco for the first time would say something that stupid.
Jamie, with his soft, deep voice, and Jenny, who is a bit more frenetic, are both waiting for the results of their university admissions exams. They are important weeks for both of them, perhaps even vital for the rest of their lives. Will their scores only be good enough for an average English university, which, the past has shown, tends only to pave the way for an average English career? They have decided not to think about it "because it would drive us crazy."
Complaining doesn't get you anywhere, but an Interrail ticket does: Copenhagen, Amsterdam, Brussels, Hamburg, Berlin, Munich, Venice. Sixty euros a day for two has to be enough, and it is. "You have a lot of picnics in parks."
Jamie sees the question coming before I even get around to asking and answers it before we get too far from Munich. This summer, everyone who meets a Brit on the road asks the same thing. "Yes, we voted Remain. And yes, it feels terrible to be out." Jenny says that it was the first real vote she had participated in since turning 18, and then this. "Seriously, I wanted to print a T-shirt for this trip saying that I'm British and that I don't want to leave the EU."A Crisis of Old People
Politics dominates the first several minutes of our conversation, just like it used to. Interrail has always felt a bit like a diplomatic mission. When you get on the train in a foreign country, it's easy to strike up a conversation with others and you quickly become the expert on political developments back home. Back when compartments were the rule rather than the exception and passengers sat facing each other, such conversations happened much more frequently. In modern trains, with their "leave-me-alone" rows of seats, it has become more difficult.
Jamie, who intends to study geography, didn't sleep on the night of the referendum. He thought about going into politics after all "to reverse the insanity," but he ultimately didn't dare.
He believes it was elderly voters who drove the country out of the EU. Indeed, he sees them as being the problem. "These bitter old people. They really don't care what happens to us. The vote wasn't about the future, it was about what they don't like about today."
It is a sentiment that one hears often from Interrailers this summer: The crisis of Europe is a crisis of old people. Young people, meanwhile, are quite happy with Europe. Eighty percent of British voters between the ages of 18 and 24 didn't want to leave the EU.
But in this respect, the United Kingdom is just like the rest of Europe: The older generations determine where the country is heading. There are more of them. And although they have it much better than their parents ever did, they are extremely angry.
In 1950, 8.2 percent of Europeans were over the age of 64, but by 2050, it will be 28 percent. Advancing age might explain a lot: Why the Continent seems so afraid, for example, and is constantly demanding more fences, more border controls and more police despite being safer than it ever has been. Why it has become so mistrustful, so suspicious of its neighbors and so erratic. This anger, this mood is familiar to us all. You see it sometimes in retirees who become enraged at every piece of garbage they see in the park. Or on the bus, when an old lady wearing a hat unloads her contempt for the world on someone just because they didn't stand up from the disabled seat quickly enough.

Amira Erden is a Muslim sociology student from Turkey who is traveling by herself. She began her Interrail trip in Norway and has traveled to London by way of Lithuania, Latvia, Poland, Germany and France. A thoughtful, reserved woman with short, brown hair and dark eyes, she has just arrived from Paris and is impressed by the monumental reception hall in St. Pancras Station. Her cousin, who is coming to pick her up, is stuck in traffic, so she has a few minutes to kill."I know that Europe has problems," Amira says. "And I also know that they are the kinds of problems that I would love to have."Her trip was a spontaneous decision; she just wanted to get out of Istanbul after a professor of hers was arrested. She still doesn't know why he was taken into custody. She only knows that during a recent lecture, he had suggested that the living conditions of Syrian refugees living in Istanbul should be scientifically researched. The Turkish Interior Ministry, though, expressly forbade it. Plus, he had been considered a leftist ever since participating in the anti-government protests three years ago on Taksim Square. "Interrail makes me sad," she says, saying that talking with other travelers was difficult. They speak of Europe, but they mean the EU. How should you explain to people in Germany or France, particularly young people, that you have to be careful about who you confide in at university? That you can be imprisoned for your thoughts?Amira has only one problem with Europe, but it is a big one. "You take it all for granted. You should be grateful."Naiveté and KnowledgeBarcelona Sants Estació to Madrid Atocha
Departure 11 a.m.
Arrival 1:45 p.m.

They just finished renovating the station in Barcelona. It is now very bright, extremely modern and there are way too many shops. One of my first realizations from this Summer 2016 Interrail trip is that European central stations have been transformed into shopping centers with train connections.It is hardly a surprise that Barcelona is overrun with tourists. And ever since Turkish politicians have decided to do everything in their power to make Turkey an unattractive Mediterranean travel destination, even more are coming. Felicitas Kern, Lea Meier and Rike Schepers, all of whom just reached the age of majority, are waiting on a bench embracing their backpacks. The fast train is about to leave for Madrid and from there they are planning to continue onward to Lisbon. All three are from Berlin. Felicitas, with blonde hair and beautiful eyes, says: "I had to do it. My parents insisted. They met each other on Interrail."And? What have you found?"What should I say? Well, just how amazingly nice the people are."It sounds so young. So naïve. Felicitas is convinced that this Continent is packed full of friendly people. To prove that Felicitas is right, her friend Rike describes the most typical of all Interrail problems. They encountered it yesterday. Their train from Marseille only got to Barcelona very late, after 10 p.m., raising an obvious question. Do you spend the money on a hostel? Or should you see if you can get by without one, since it's only dark for a few hours in summer? With the price of rooms exorbitant in Barcelona in high season, the answer was clear."Until about 2 a.m., you think, it's not so bad. But by 4 a.m., you totally regret it. Passersby gave us money because they thought we were homeless. One woman came up to us and asked how she could help."

Times Are Changing

Their parents told them that it used to be possible to sleep in night trains, and sometimes even in train stations. But that's no longer the case. These days, there are a lot fewer night trains and station benches almost all now have armrests, presumably only to keep Interrailers from stretching out across four seats for a bit of shut-eye.To be completely on the safe side, many train stations are now completely closed up for the night. In some European cities, it seems that the station security guards' only responsibility is that of waking up travelers who have had the presumption to fall asleep.But it's not just the stations that have changed. Interrail traveling is quite a bit different than it used to be. You used to flip through mountains of timetables to plot the perfect route, only to immediately discard it because you met someone who had an even better plan. Trips were generally made overnight so as to save money on lodging and you shared the jam-packed trains heading south from Northern Europe with immigrant guest-worker families going home for vacation. Your parents only learned how you were doing two weeks after you'd already returned home -- when the postcard you sent from Greece finally arrived.Today, many Interrail travelers make reservations for all of their overnight stays on the Internet before they leave. You know where you are going to sleep, mom and dad know where you're going to sleep and you can no longer be spontaneous. Spontaneity has become expensive -- and sometimes impossible, because some European rail carriers require seat reservations and have limited the number of seats made available to those traveling with Interrail passes. In France and Spain, you can't just jump on the next train heading your way. Some older Interrailers will say that it isn't Interrail at all anymore.And of course, you used to spend a lot more time on the train. Forty-eight hours in a packed train from Dortmund to Thessaloniki, most of the time sitting next to a toilet that already began stinking way back in Germany.

The handle-bar-mustachioed racist that the Austrian rail company assigned as conductor on this train is yelling. Half the train can hear him. Why can't this "scum" stay in their "filthy shit country?" he screams. The "scum" he is referring to are two Roma children and their mother and they are on their way to Budapest. They just boarded in Vienna and are sitting on the steps near the toilet. They apparently have incorrect tickets. Calling crying children "scum" is likely only possible when, in place of your heart, you have only a pile of Tyrolean cow shit.Henry, Jonathan and Leo, whose names were changed for this story, don't hear any of it. They are sitting at a table a few cars away -- and it is immediately obvious that they are Interrailers. When you buy your ticket, you are given a narrow, yellow-green arm band, and many wear them so they can be recognized.The three set off from Karlsruhe one week ago and have three weeks of traveling ahead of them. And they're already broke. Jonathan wants to become a doctor, Henry hopes to study business and Leo isn't sure yet but is leaning toward architecture. They are young and this is their first serious trip without their parents -- parents who insisted that their real names not be used in this story.It all started when the three decided to go "have another drink" in Vienna.They just graduated from a top-tier German high school and really should have known that a bar with pink neon on the facade and darkened windows -- and with a name like Hot Flamingo's Bar -- isn't just a watering hole. But again, the three are quite young and the three women who welcomed them inside were "totally hot," as Henry describes them.

Liquid Courage

As was the woman who slowly undressed on stage. At some point, they found themselves sitting at a table with the three women. It was, it seemed, their lucky day, with the women telling them that for three such good looking young men, they were willing to make an exception to the house rule mandating "look but don't touch." First, though, the girls had to drink a bit of liquid courage, in the form of champagne. "In the end, it cost us over 3,000 euros, pretty much everything we had," says Henry, who still wears braces. And no, insists Jonathan, nothing untoward happened.Three dumb kids, one might think. Let them out to travel around for just a single week, and they get fleeced in the first strip club they see in Vienna. But then, if you take a bit of time to listen and just let them talk, it's not long before you notice just how refreshing it is to hear about Europe's future from people who will still be around to experience it."It's probably not financially viable," says Jonathan, "but it would probably be a good idea to give every European an Interrail ticket for their 18th birthday so they don't believe the crap coming from the AfD." He's referring to the anti-Islamic, right-wing populist party Alternative for Germany that is currently making inroads in the country.It's not that difficult to come up with a rough estimate of how much it would cost. With 5.5 million 18-year-olds in Europe, the total would be in the neighborhood of 2 billion euros, or around 1.5 percent of the EU budget. The bank bailout was more expensive than that.

Four Weeks Off to Be Free

"And when it comes to the euro," says Leo, "I'm going to be sure to tell everybody that the currency exchange windows at Prague central station charge 19.9 percent to exchange euros for Czech crowns."In talking to them, it becomes clear that these three young men have taken only these four weeks off to be free. To be young. To screw up in a strip club called Hot Flamingo.

After that, it's back to real life. Jonathan, the future doctor, plans to work in a hospital next month while the other two have internships lined up. They are quite a bit more disciplined than similar young men and women were 30 years ago. None of them will end up staying for 30 semesters at university, as was not uncommon in Germany and other European countries not that long ago. Employers no longer overlook such things. Their parents were of a generation that took things as they came -- and they've raised their children differently.

There are lots of studies showing that Jonathan, Henry and Leo are not exceptions. The young men and women of today are more focused on their careers, more politically aware and more optimistic than the generation that preceded them. They are more likely to get their diploma from a university prep high school, they speak better English, they take the risk of terror seriously but nevertheless believe that it's not therefore necessary to turn Europe into a walled fortress. Didn't it used to be that the young ones were crazy and old ones were thoughtful?

Shift in political winds toward populism weakens appetite for austerity

By Greg Ip

Pro-Brexit campaigners protested alongside pro-Europe demonstrators at a March for Europe rally in London on Sept. 3, 2016. The U.K.’s vote to leave the European Union in June was a recent catalyst for a shift in fiscal policies. Photo: Chris Radburn/Press Association/Zuma PressFor years, the world has looked to central banks to deploy whatever tools they had to prop up economic growth. Now, just as those tools reach their limits, governments are quietly stepping up. Fiscal policy across the developed world is collectively turning more stimulative for the first time since the end of the recession.This may be the most underappreciated economic development of the year. While the scale of the stimulus is modest in dollar terms, it signals a more profound shift in the political winds.Globally, the rise of political populism has pushed deficits down the list of priorities while elevating tax cuts and benefits for the working class. With enough critical mass, such measures could persuade central banks to rethink their own super-easy monetary policies, which would undermine the case for today’s rock-bottom bond yields and pricey stocks.

The fiscal shift is easy to miss, because rhetorically at least, governments remain devoted to cutting their debts. But numbers tell a different story. In major economies including the U.S., Japan and Britain, budget deficits will either be larger this year than last, or larger than originally targeted. J.P. MorganJPM-0.14% economists believe that fiscal policy will be positive for developed economy growth this year, instead of neutral or negative, for the first time since 2009.While that impetus is projected to fade next year, events may dictate otherwise, especially in the U.S., where more borrowing is implicit in both presidential candidates’ plans. This week, Republican Donald Trump unveiled a raft of proposed subsidies and tax breaks for child care and maternity leave, not typically a Republican priority, without saying how they’d be paid for other than cutting waste and abuse.

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The near-term catalyst for the fiscal turn was Britain’s vote to leave the European Union on June 23. Not only did the resulting uncertainty threaten global economic growth, it also alerted centrist political parties to how unhappy voters are with the economic status quo.

British chancellor George Osborne quickly abandoned his goal of a budget surplus by 2020. He was nonetheless sacked by the new prime minister, Theresa May, who has moved the ruling Conservative Party in a more populist direction that emphasizes inequality, homeownership and corporate responsibility and dwells less on the budget deficit.Similar dynamics have also unfolded in the eurozone. In July, the European Commission elected not to fine Portugal and Spain for missing their deficit-reduction targets.Not only did Germany’s finance minister, Wolfgang Schäuble, the bloc’s de facto debt policeman, support the decision; he has turned less austere at home, promising more than $2 billion worth of tax cuts and increased child benefits in 2017 and $17 billion of tax cuts in 2018.To be sure, these measures are small, and they merely keep Germany’s budget surplus from growing. But Jacob Kirkegaard of the Peterson Institute for International Economics thinks bigger stimulus could be in store. Chancellor Angela Merkel is losing support to the populist anti-immigrant Alternative for Germany and “needs the tax cuts to placate restive colleagues,” he says. He notes elections will take place in France, Germany and the Netherlands ​next year, and possibly Spain and Italy, which will further sap the appetite for debt reduction.For Japan, the impetus was both Brexit and the Bank of Japan830112.79%’s introduction of negative interest rates this year, which failed to work as planned; the yen went up and stocks went down. In August, Prime Minister Shinzo Abe unveiled a $73 billion package of infrastructure spending, cash handouts to poor families, and other stimulative measures.

In the U.S., budget caps enacted in 2011 have already been loosened. Meanwhile, Hillary Clinton, the Democratic nominee, is campaigning to boost spending on countless programs, from college education to infrastructure, mostly financed with higher taxes on the rich. Whether she can get those through Congress is another question. Republicans in Congress would almost certainly grant Mr. Trump part of his wish list, which includes big spending boosts and sweeping tax cuts, virtually none of them paid for.Mr. Trump’s rise demonstrates that austerity has lost the political energy it had in 2010. “It is the natural inclination of politicians to want to spend more when you have prolonged periods of low economic growth,” says Mr. Kirkegaard. “In that sense we are reverting to the norm.”Central bankers can take credit for the shift. As the benefits of zero to negative rates have shrunk and the side effects risen, they have exhorted finance ministers to take up the burden of supporting growth. The low rates they have engineered have drastically reduced the cost of servicing debt, which reduces the risk of a debt crisis and delivers finance ministers a windfall.But even as they welcome the fiscal assist, central banks may have to recalibrate their own plans. In the U.S., U.K., Japan and Germany, unemployment is back to, or below, prerecession levels. This could make the European Central Bank and Bank of Japan feel less compulsion to expand bond buying or push rates further into negative territory, and could encourage the Fed to raise rates a bit more quickly. Bond investors, beware.

Gold's young bull market has totally stalled out in the past couple months. This major loss of momentum following gold's powerful surges in 2016's first half is really souring sentiment and vexing traders. They are trying to figure out if gold's recent consolidation drift is the dawn of a new bearish trend or a healthy pause within an ongoing bull. The likely answer comes from understanding what's causing gold's high consolidation.Back in mid-December right after the Fed's first rate hike in 9.5 years, gold slumped to a miserable new 6.1-year secular low. That was driven by heavy gold-futures selling from speculators, who were utterly convinced higher rates are gold's mortal nemesis. But with bearishness so extraordinary and investors' gold allocations so low, a mighty mean reversion higher for gold was very likely in 2016 as I wrote in late December.Indeed that soon came to pass. As the grossly-distorted stock markets artificially levitated by the Fed's extreme easings rolled over in January, investors started remembering the wisdom of diversifying some of their portfolios into gold. As a unique asset tending to move counter to stock markets, gold remains the leading diversifier to mitigate downside risks in stock-heavy portfolios. Gold was finally off to the races.By early March gold formally entered bull-market territory for the first time since mid-2011, surging 20%+ off its deep secular lows. Gold's enormous 16.1% gain in Q1'16 made for its best quarter in 30 years, since Q3'86!Â Such a blistering pace of ascent wasn't sustainable, and gold started faltering in Q2'16. But heavy investment buying was soon rekindled, starting with a colossal US-monthly-jobs miss in early June.Then in late June, gold rocketed higher again after the surprise success of the British people voting to overthrow the tyranny of those unelected, unaccountable EU bureaucrats. But gold's newfound post-Brexit strength was short-lived, as it topped at $1365 in early July. In just 6.7 months, gold had blasted an astounding 29.9% higher! So a breather was certainly overdue, especially inside gold's summer doldrums.Summer has always been the weakest time of the year seasonally for gold, as it's devoid of the outsized demand spikes driven by income-cycle and cultural factors that gold enjoys much of the rest of the year. And indeed between that early-July peak and the end of August, gold pulled back 4.1% to $1308. This metal has been drifting in the mid-to-low $1300s for over 9 weeks now, breeding mounting bearishness.Until last Friday, this summer's unbelievable stock-market levitation to new record highs offered some cover for gold's lethargy. As recent years proved in spades, gold investment demand wanes when the stock markets apparently do nothing but rise indefinitely thanks to endless central-bank easing. Why diversify into gold if stocks seemingly never sell off materially? But that levitation finally started to fracture.A week ago the flagship S&P 500 plummeted in a massive 2.5% single-day loss! That was a stunning wake-up call to the legions of hyper-complacent stock bulls. Yet there was no accompanying surge in gold investment demand for prudent portfolio diversification. The world's dominant leading gold ETF, the American GLD SPDR Gold Shares, actually suffered a major 1.1% draw that day stock markets rolled over!So what the heck is going on with gold here? If not even the biggest stock-market down day by far since that late-June Friday when the Brexit-vote results became known could spark some life in gold, what will? The longer gold remains stalled, the more investors' and speculators' concerns mount about the health of its young bull. Understanding what's been holding gold back is critical to gaming its next major move.Gold's young bull has stalled due to an interplay between investors' gold demand, speculators' gold-futures trading, this summer's lofty US stock markets, and typical weak mid-year seasonals. Since this year's powerful gold bull has been driven almost exclusively by investment buying, that's the place to start. This chart looks at GLD's gold-bullion holdings overlaid on the gold price during the past couple years..

As gold slumped to last year's major secular lows, its investment demand as evidenced by builds and draws in GLD's physical gold bullion held in trust for its shareholders waned dramatically. The very day that gold bottomed in mid-December immediately after the Fed's first rate hike in nearly a decade, GLD's holdings hit their lowest level in 7.3 years! American stock investors had abandoned gold, leaving it for dead.But this dire trend soon reversed right out of the gates in early 2016. Thanks to a sharp stock-market selloff, which would snowball to the biggest in 4.4 years for the benchmark S&P 500, investors finally started returning to gold. They began aggressively adding gold exposure via GLD shares, which is the quickest, easiest, and cheapest way by far for mutual funds and hedge funds to buy gold. GLD demand just skyrocketed.GLD is a tracking ETF, it's designed to mirror the price of gold. But GLD-share supply and demand is totally independent from gold's own supply and demand. Thus GLD-share prices always threaten to decouple from gold prices. There's only one way to neutralize this inherent conflict. Excess GLD-share supply or demand has to be directly shunted into underlying physical gold bullion itself, to equalize any pressures.So when American stock investors buy GLD shares faster than gold itself is being bought, their prices will soon break away from gold's to the upside. GLD's managers have to intervene to maintain tracking. So they issue enough new GLD shares to supply and offset the excess demand, keeping GLD's price in line with gold's. Then they immediately deploy the capital raised from these share sales by buying gold bars.GLD necessarily acts as a direct conduit between the vast pools of stock-market capital and the global physical gold market. So daily builds in GLD's holdings showing this ETF is buying gold bullion reveal stock-market capital flowing into gold. Heading into February, differential GLD-share demand from big American stock investors, overwhelmingly funds, exploded higher as the stock markets kept tanking.Take careful note of the timing. In January, GLD's holdings grew by 4.2% or 26.9 metric tons. But in February they rocketed 16.1% higher in a gigantic 108.0t build! This is a critical lesson for today. Last Friday's sharp S&P 500 selloff was merely the beginning of stock markets rolling over. Selling pressure has to be sustained, becoming a trend, before stock investors' complacency crumbles so they once again seek gold.So far in this latest stock-levitation rollover, we've only seen 2 major S&P 500 down days. Last Friday's 2.5% and this past Tuesday's 1.5%. While no doubt steep in light of recent months' record-low volatility, that's not enough selling to convince stock investors the prevailing trend has decayed to down. We will probably need a couple weeks of selling before they get worried enough to start re-diversifying into gold again.Back in the first 10 trading days of January, the S&P 500 saw no fewer than 6 major down days! They included daily drops of 1.5%, 1.3%, 2.4%, 1.1%, 2.5%, and 2.2%. Gold investment demand didn't pick up dramatically until stock investors were really getting spooked by an ongoing hammering. The differential demand for GLD shares forcing holdings builds that drive up global gold prices didn't come until after that.So a couple days of material stock-market selling so far in September probably hasn't been enough yet to shift stock-investor psychology away from this summer's hyper-complacency. If the stock markets keep grinding lower on balance as they certainly ought to after such an extreme Fed-conjured levitation to new record highs, gold will inevitably catch another major investment bid sooner or later here. Be patient.And the importance of GLD-share buying by American funds for this gold bull cannot be overstated, it is staggering. In Q1'16, gold surged 16.1% higher on a 27.5% or 176.9t build in GLD's holdings. The best research available on gold's actual underlying physical supply and demand comes from the venerable World Gold Council, in its indispensable Gold Demand Trends reports that are published once a quarter.Back in May the WGC released its Q1'16 GDT. It reported that global gold demand climbed 20.5% year-over-year, or a 219.4t gain. Incredibly, that first-quarter 176.9t build in GLD's holdings alone accounted for a staggering 80.6% of the total worldwide growth in gold demand! That compares to traditional bar-and-coin demand only rising a trivial 1.7t YoY. GLD gold-bullion buying was the whole story of Q1'16.2016's new gold bull exists solely because large American stock investors decided to flood back into gold via GLD shares after neglecting reasonable portfolio allocations to it for years. Gold rocketed up in the first quarter not because small investors were buying bars and coins, but because big ones were buying ETF shares. This gold bull's incredible dominance by GLD-share buying actually intensified in Q2'16!In August the WGC released its Q2'16 GDT report, revealing worldwide gold demand surged up another 15.4% or 139.8t YoY. GLD's Q2'16 holdings build alone of 130.8t accounts for a whopping 93.6% of this total global increase in gold demand! Again world bar-and-coin demand was dead flat, up a trivial 2.5t in the second quarter. Gold's entire new bull market has been overwhelmingly driven by differential GLD buying!Now odds are this anomalous GLD-dominating trend won't persist. As this gold bull lasts longer and marches higher, traditional demand for jewelry in Asia and bars and coins in the West will start growing and flourishing again. ETF buying commandingly led by GLD will hand off the gold-buying baton to other investors. But for now, this entire gold bull is built on the back of GLD. And that's why gold has stalled.Differential GLD-share demand has totally evaporated in this almost-over third quarter. As of the data cutoff for this essay on Wednesday, GLD's holdings had actually fallen 1.5% or 14.6t so far in Q3'16! This modest GLD draw, or more accurately the lack of big ongoing GLD builds, is why gold is dead flat quarter-to-date. Without large American stock investors buying GLD, the entire impetus of gold's bull has vanished.There are a few reasons. Differential GLD-share demand was extremely strong after that Brexit vote in late June into early July. Early in quarters is when hedge funds often position capital for those entire quarters. That big fund buying wasn't sustainable, and soon petered out. That was exacerbated by both the market summer and the shocking resumption of the stock-market levitation back up to new record highs.All throughout the markets there is a big summer lull as traders' attention naturally shifts to vacations and leisure. Kids are out of school, the sun is warm and welcoming, so the majority of traders including big fund managers leisurely drift through summer. They loosely watch the markets, but don't often make major allocation decisions unless forced to. That's one reason gold has always languished in summer doldrums.On top of that, the US stock markets surged to new record highs again soon after that pro-Brexit vote that was long-prophesied to spell doom. Gold topped on July 8th, and the very next trading day the S&P 500 edged up to its first new record high in 13.7 months. The failing stock bull was suddenly alive and well again despite the feared Brexit coming to pass. The day after that GLD suffered a major 1.6% draw.Over two weeks in mid-July, the S&P 500 climbed to new all-time highs in 7 out of 10 trading days! That kind of thing breeds epic complacency, rekindling the stocks-can-rally-forever myth of recent years fed by extreme central-bank easings and jawboning. So with stocks back in vogue in a major way, the allure of counter-moving gold for portfolio diversification evaporated. Just like it had during the past couple years.Now I fully expect this love-stocks-hate-gold trend to reverse again just like it did back in January. But we first need to see the stock markets sell off for long enough to worry investors that their trend is once again lower. The sharp S&P 500 drops over this past week are a great start, but odds are we'll need to see a couple weeks of lower stock markets before investors start actively diversifying portfolios into gold again.They remain radically underinvested. GLD is the best proxy by far for stock-market capital invested in gold. Back in late August, its total physical gold-bullion holdings held in trust for its shareholders were worth $40.3b. Meanwhile the collective market capitalization of all 500 elite S&P 500 stocks was way up at $20,063.4b. So gold investment represented just 0.2% of stock investors' portfolios by this particular metric!That's absurdly low, practically nonexistent. For millennia, the world's smartest and most-successful investors have advocated having at least 5% of every portfolio invested in gold. And while that bare-minimum goal is likely far too lofty for American stock investors brainwashed into believing gold has no use in the modern world economy, their gold holdings are still very low even by their own recent standards.The last normal years before this latest artificial stock-market levitation driven by the Fed's open-ended QE3 campaign ran from 2009 to 2012. During that span, the ratio of the value of GLD's holdings relative to the total market cap of all S&P 500 components averaged 0.475%. So American stock investors are woefully underinvested in gold today even by their own pathetic precedent, running at just 3/7ths normal levels.This ongoing radical gold underinvestment despite this year's huge GLD holdings build is glaringly obvious in this chart. It divides the total value of GLD's holdings by the collective market capitalization of the S&P 500, or SPX. American stock investors' investment-capital inflows into gold are only beginning, with the lion's share yet to come when this artificially-extended stock bull inevitably rolls over into a new bear..

In late August, American stock investors had only 0.198% of their portfolios allocated to gold per this GLD/SPX ratio! That's really low relative to their own precedent after GLD's early-adoption years, which averaged 2.4x higher in that post-panic pre-QE3 normal-year span between 2009 to 2012. So they have vast GLD buying still left to do even from here merely to mean revert and normalize their gold exposure.This young gold bull's overwhelmingly-dominant driver, heavy differential GLD-share demand from large American stock investors, is far from over. Once normal stock-market cycles driven by valuations again overpower central banks' false assertion that they've been eradicated, gold investment demand will come roaring back. And that will ignite and fuel gold's next major upleg, likely again led by GLD inflows.While GLD isn't the whole story of gold's young new bull, it's certainly the vast majority. The remainder has been driven by gold-futures trading by American speculators. As I warned back in mid-July, these guys added new long-side bets so aggressively last summer that they soared to all-time records. That made for a record gold-futures selling overhang that has really dogged gold in recent months, truncating any rallies.With speculators' hyper-leveraged gold-futures longs remaining at near-record levels ever since then, this elite group of traders hasn't had sufficient dry powder to bid gold higher. This too has contributed to the stalling gold prices in recent months. But digging into what's going on in gold futures in depth would require another whole essay. While important, the gold-futures developments take a back seat to GLD buying.Gold stalled out in this third quarter because large American stock investors halted their diversification into gold via GLD shares. The miraculous resurgence of the long-in-the-tooth stock bull to a streak of new records this summer despite the Brexit vote's success rekindled recent years' love affair with stocks. But when these lofty overvalued stock markets unavoidably roll over, gold investment demand will soar again.Investors can certainly play gold's coming next upleg with GLD shares or physical gold coins. Gold is essential for all portfolios, as its tendency to move counter to stock markets provides a critical hedge for the rest of portfolios.Â But once that foundation is in place, gold's gains will be dwarfed by those of the elite gold miners' stocks. Their profits greatly leverage rising gold prices, yielding stock-price gains many times gold's own.That's long been our specialty at Zeal. We've spent tens of thousands of hours researching gold stocks and markets, so we can better decide what to trade and when. This has resulted in 844 stock trades recommended in real-time for our newsletter subscribers since 2001. Their average annualized realized gains including all losers are running way up at a stellar +23.4%!Â We can help you multiply your wealth too.The bottom line is gold's young new bull market has stalled because American stock investors ceased aggressively buying GLD shares in the third quarter. The stunning new stock-market record highs soon after the long-feared Brexit vote this summer shifted attention away from gold back to stocks. Investment demand for gold wanes when stocks apparently do nothing but rally indefinitely, as recent years proved in spades.But as these lofty, overvalued, central-bank-goosed stock markets inevitably roll over, American stock investors will once again look to counter-trending gold for prudent portfolio diversification. It was their heavy differential buying of GLD shares that catapulted gold sharply higher in the first half of 2016, so their return to gold buying will also ignite and fuel gold's next major upleg. Get deployed now, before it arrives.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.